(Updates with analyst comment in fourth paragraph)
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
Coventry Health Care Inc. (CVH) Chief Financial Officer Shawn Guertin will resign effective year end, the company said, citing the strain the job has placed on his family during rough times for the health insurer and the industry.
Coventry Chairman and Chief Executive Allen Wise announced the move during a conference call Friday after the company posted a 17% decline in third-quarter profit on a one-time charge. The results exceeded Wall Street estimates, and the company raised its 2009 adjusted earnings forecast.
Guertin has been with Coventry for 12 years, including five as CFO. John Stelben, senior vice president of finance who has been with the company for more than a dozen years, will serve as interim CFO while the company evaluates candidates to take the job on a permanent basis.
Stifel Nicolaus analyst Thomas Carroll called the resignation "a particular negative," as he considers Guertin a valuable CFO with a unique understanding of the business. "His departure also reduces the likelihood that acquisition discussions are taking place within CVH."
Guertin's departure comes at the end of a year in which Coventry has tried to gain stable footing after a rough 2008. Coventry lost nearly half its market value in October 2008 after it slashed its full-year forecast, citing higher medical costs, unexpectedly low business volume and higher overhead spending.
Those problems, combined with economic and cyclical pressures, caused Coventry to issue disappointing 2009 earnings forecast early this year. Wise, the company chairman who was well-regarded for turning Coventry around years earlier, returned to the CEO role early this year.
"Shawn told me when I returned to Coventry as CEO ... that the prior-year, 2008, had been very difficult and had taken its toll on him and his family," Wise said. "At that time, nevertheless, he said it was important for him personally and for the company that he remain until the ship was righted, so to speak, and the company had the proper foundation for the future."
Now, however, it is best for Guertin and his family "to take a much needed break," the CEO said.
While Coventry would be better off if Guertin remained, Wise said, "I have to respect what's best for him and his family, and I understand his priorities." Guertin will remain with the company in a consulting capacity for 18 months, Wise said.
Wise said his own employment contract, which was set to expire at the end of 2010, has been extended for a year. He and the board have been working on a succession plan and wanted two years to help ensure a smooth transition.
Coventry and other health insurers face enrollment and cost pressures, which now include added expenses associated with the H1N1 virus and coverage provided to members who have lost their jobs. Uncertainty over the potential effects of health-reform legislation on managed-care companies have added to stock volatility, although Coventry shares are up nearly 70% this year as the company has taken steps to improve operations.
Third-quarter per-share operating earnings substantially exceeded Wall Street views and reflected improved margins in commercial health plans, "which is a good sign that ... repricing continues to gain traction," Wells Fargo analyst Matt Perry said. The company experienced lower medical costs as a percentage of premium revenue, a key earnings measure.
Perry said Coventry is being prudent in holding a substantial cash cushion on its balance sheet, given uncertainties over health reform.
Coventry shares recently traded at $20, down 91 cents, or 4.4%. Other health-care industry stocks were lower as well, along with the broader market.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@dowjones.com